Dow Rises By 51.85, To 2,338.07

By LAWRENCE J. De MARIA

Published: May 6, 1987

The stock market moved sharply higher yesterday as investors gained confidence from a firming dollar and a slight drop in interest rates.

As has often been the case recently, blue-chip stocks led the charge. The Dow Jones industrial average surged ahead by 2.3 percent, to 2,338.07, and the 51.85-point rise was its fourth-best point gain ever. Last month, on April 3, the Dow had its best point gain, 69.89, or 3 percent.

The trading day started modestly enough. Volume was not particularly heavy in the early going, perhaps because many investors were on the sidelines, casting wary glances at the credit markets. Confidence Spurs Trading

But volume - particularly in blue chips - picked up steam later in the afternoon as investor confidence mounted. By the close, 192.3 million shares had changed hands, up from 140.6 million on Monday, when trading was somewhat crimped by a holiday in Japan.

Investors were apparently buoyed by the steadying dollar, which many experts feel is a prerequisite for enthusiastic Japanese participation in the huge Treasury refunding this week. If the Japanese are strong buyers of Treasury securities, interest rates will likely hold steady or drop. And, the reasoning goes, stocks - which compete for investment dollars with bonds and other fixed-income securities - will benefit.

''The refunding has really put a scare into the stock market,'' said Rosemarie Shomstein, an economist with the Equitable Life Assurance Society. ''But I think the Japanese are going to be purchasers.''

Ms. Shomstein said that, not only was the yield spread between Japanese securities and American securities very wide, but Japanese firms were anxious to be primary dealers in American markets, and will not boycott that market, despite trade differences with the United States.

As for the dollar, she said it was ''going to be firmer; the trade numbers are going to get better.''

Some experts found another reason for the market's strength. Those who follow program traders, money managers for large institutions who buy and sell huge baskets of stocks when disparities arise between the stocks' cash value and the value of futures contracts on the stocks, said they expected an upturn. Index Futures Higher

A rise in investor confidence was reflected in higher prices on stock index futures, these experts said, both after the close of trading on Monday and early yesterday. Thus, they added, institutional investors bought stocks to close the gap between the cash value of stocks and the value put on major stock index futures.

They pointed to the cash Major Market Index, as compiled by the American Stock Exchange: That blue-chip-weighted index - 16 of its 20 stocks are in the Dow - jumped 12.24, to 459.49.

''Today's rally was really set up in yesterday's close,'' said Donald M. Selkin, head of stock index futures research at Prudential-Bache Securities. ''People are bullish. People have divorced themselves from the high interest rate scenario.''

Mr. Selkin also noted that some institutional favorites - International Business Machines, Du Pont and General Motors, to name a few - are soon to go ex-dividend. Thus money managers have an additional reason to buy them: to capture the next dividend for their portfolios. Advance Broadly Based

While blue chips made some of the more spectacular gains, the advance was broadly based. On the New York Stock Exchange, 1,192 issues moved higher and 405 declined. The Big Board's composite index rose 3.12, to 166.34, and the Standard & Poor's 500-stock index gained 5.98, to 295.34.

Drug stocks also jumped, especially after Squibb said it expected much higher earnings than had been expected. Squibb's shares soared 10 5/8, to 163 3/8, and investors started flocking to other drug issues. Merck rose 6 5/8, to 156 1/8, and Upjohn added 2 5/8 at 42 1/8.

Major steelmakers moved higher, after the Paine Webber brokerage raised earnings estimates for some of them. USX, the most actively traded Big Board issue, gained 3/8, to 29 3/8, on more than 4.5 million shares. Bethlehem Steel jumped 1 1/2, to 15 1/8, and was also heavily traded.

The American Stock Exchange market index rose 3.11, to 328.39.

Many over-the-counter issues also had a good day yesterday. ''It was pretty much a high-tech market, as in listed stocks,'' said Norman J. Shapiro, head O-T-C trader at Bear, Stearns, citing Microsoft, which jumped 8 3/4, to 115 3/4. The Nasdaq market index of O-T-C issues moved 3.98 points higher, to 422.43.

Spectradyne rose 7 1/2, to 37 1/2, on takeover speculation, after the investor Marvin Davis announced that he owned 5.7 percent of the company's shares and wanted to acquire the nation's largest provider of pay-per-view cable TV entertainment in hotels.